Wednesday, June 29, 2011

Charity Wednesday: Lady Gaga - A Lesson in Cause-Related Marketing

Lady Gaga is under fire for potentially profiting from her own charitable efforts.  On her website, she provides her fans with a way to help relief efforts in Japan through the purchase of  "We Pray for Japan" bracelets.  The bans cost $5, and a note on the site claims that "All proceeds* go directly to Japan relief efforts."  A law firm based out of Detroit is suing the singer, alleging she has broken federal racketeering and consumer protection laws by charging taxes on the items, inflating shipping costs, and misrepresenting how much is being donated to charity by the sale of the bracelets.

I went through the process of ordering a bracelet and below is the detailed summary of charges:
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Shipping and Handling:
Order Total:

As you can see, my $5 bracelet for charity cost me nearly $10.

But I don't think what Lady Gaga is doing is illegal, or anything less than well-intentioned.  I just don't think her people know how to sell something to raise money for charity.

When a company sells a product that is marketed as a way to help charity, it's called cause-related marketing.  You've seen it.  Those yogurts with the pink lids sold to fight breast cancer and the stuffed animal with the tags that say their purchase will help fund wildlife protection are common examples.  Typically in cause-related marketing, a company will partner with a charity and agree to donate a certain set amount (50 cents, 3%, etc.) of the sale of a specific item, in exchange for being able to use the charity's name in marketing and advertising of the item.  It helps the company look good and it helps charities, because they usually don't have to do much work to secure those funds.   There is nothing wrong with a company covering their own expenses with the sale of these items, or even making a profit. As long as consumers know how much of their purchase is helping a charitable cause.  And applicable sales taxes do apply to these purchases.

Because I'm still waiting for the call from Lady Gaga's people to consult on her charitable efforts, I'll give my advice here.  This is how I think the sale of the bracelets should have been handled.  First I would have decided on a specific charity to receive my bracelet goodwill (Gaga does not disclose what charity will receive the donation). Second, I would have chosen how much money from the sale of each bracelet to donate to my chosen charity.  Lastly, I would have chosen a price for the bracelet based on total donation goal, production costs, and own profit goal.  And I would have made my first two points public, at the point of sale on my website.    

*About the word 'proceeds.'  It means almost nothing. It could mean profit, after marketing and production costs, or a percent of the profit, or whatever the company decides to throw toward a charity.  It's a ambiguous term for something financial with no defined commitment attached to it.  Lawyers probably love it.

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